
	BUSINESS SEGMENT REPORTING

Farmer Mac's operations consist of four reportable operating segments – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. The Institutional Credit segment comprises Farmer Mac's guarantees of AgVantage securities related to general obligations of lenders that are secured by pools of eligible loans.

Farmer Mac uses these four segments to manage business risk, and each segment is based on distinct products and distinct business activities. In addition to these four operating segments, a corporate segment is presented. That segment represents activity in Farmer Mac's investment portfolio and other corporate activities. The operating segment financial results include directly attributable revenues and expenses. Corporate charges for administrative expenses that are not directly attributable to an operating segment are allocated based on headcount.

Farmer Mac uses core earnings to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. Core earnings principally differs from net income attributable to common stockholders by excluding the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with generally accepted accounting principles ("GAAP") if the related financial instruments are held to maturity, as is generally expected. Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of this non-GAAP measure is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

The financial information presented below reflects the accounts of Farmer Mac and its subsidiaries on a consolidated basis. Accordingly, the core earnings for Farmer Mac's reportable operating segments will differ from the stand-alone financial statements of Farmer Mac's subsidiaries. These differences will be due to various factors, including the reversal of unrealized gains and losses related to fair value changes of trading assets and financial derivatives, as well as the allocation of certain expenses such as dividends and interest expense related to the issuance of capital and the incurrence of indebtedness managed at the corporate level. The allocation of general and administrative expenses that are not directly attributable to an operating segment may also result in differences.

The following tables present core earnings for Farmer Mac's reportable operating segments and a reconciliation to consolidated net income for the three and nine months ended September 30, 2015 and 2014:

Table 9.1



Core Earnings by Business Segment
For the Three Months Ended September 30, 2015
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	22,805		$	15,329		$	6,909		$	19,341		$	3,185		$	(651	)		$	66,918
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(796		)	—			—			—			—			796				—
Interest expense⁽²⁾	(12,381		)	(10,699		)	(4,002		)	(8,070		)	(1,234		)	1,651				(34,735		)
Net effective spread	9,628			4,630			2,907			11,271			1,951			1,796				32,183
Guarantee and commitment fees	3,785			7			100			436			—			(796		)		3,532
Other income/(expense)⁽³⁾	513			13			—			—			(619		)	(8,420		)		(8,513		)
Non-interest income/(loss)	4,298			20			100			436			(619		)	(9,216		)		(4,981		)

Release of allowance for loan losses	1,164			—			—			—			—			—				1,164

Provision for losses	(861		)	—			—			—			—			—				(861		)
Other non-interest expense	(4,228		)	(986		)	(838		)	(522		)	(2,986		)	—				(9,560		)
Non-interest expense⁽⁴⁾	(5,089		)	(986		)	(838		)	(522		)	(2,986		)	—				(10,421		)
Core earnings before income taxes	10,001			3,664			2,169			11,185			(1,654		)	(7,420		)	⁽⁵⁾	17,945
Income tax (expense)/benefit	(3,500		)	(1,282		)	(760		)	(3,915		)	533			2,597				(6,327		)
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	6,501			2,382			1,409			7,270			(1,121		)	(4,823		)	⁽⁵⁾	11,618
Preferred stock dividends	—			—			—			—			(3,295		)	—				(3,295		)
Non-controlling interest	—			—			—			—			36			—				36
Segment core earnings/(losses)	$	6,501		$	2,382		$	1,409		$	7,270		$	(4,380	)	$	(4,823	)	⁽⁵⁾	$	8,359

Total assets at carrying value	$	2,856,097		$	1,941,166		$	987,115		$	5,405,360		$	3,664,107		$	—			$	14,853,845
Total on- and off-balance sheet program assets at principal balance	5,504,030			1,898,625			1,500,307			6,725,017						—				15,627,979


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives and hedging activities" on the consolidated financial statements.


⁽³⁾	Includes reconciling adjustments for the reclassification of expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets. Also includes a reconciling adjustment related to the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.


⁽⁴⁾	Includes directly attributable costs and an allocation of indirectly attributable costs based on headcount.


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.



Core Earnings by Business Segment
For the Three Months Ended September 30, 2014
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	20,052		$	14,183		$	6,703		$	18,751		$	4,683		$	(962	)		$	63,410
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(508		)	—			—			—			—			508				—
Interest expense⁽²⁾	(11,337		)	(9,110		)	(3,813		)	(8,928		)	(910		)	(14,788		)		(48,886		)
Net effective spread	8,207			5,073			2,890			9,823			3,773			(15,242		)		14,524
Guarantee and commitment fees	3,716			49			—			387			—			(508		)		3,644
Other income/(expense)⁽³⁾	369			13			9			—			(2,392		)	19,284				17,283
Non-interest income/(loss)	4,085			62			9			387			(2,392		)	18,776				20,927

Provision for loan losses	(511		)	—			—			—			—			—				(511		)

Release of reserve for losses	1,315			—			—			—			—			—				1,315
Other non-interest expense	(3,797		)	(747		)	(762		)	(478		)	(2,626		)	—				(8,410		)
Non-interest expense⁽⁴⁾	(2,482		)	(747		)	(762		)	(478		)	(2,626		)	—				(7,095		)
Core earnings before income taxes	9,299			4,388			2,137			9,732			(1,245		)	3,534			⁽⁵⁾	27,845
Income tax (expense)/benefit	(3,255		)	(1,535		)	(749		)	(3,407		)	2,619			(1,237		)		(7,564		)
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	6,044			2,853			1,388			6,325			1,374			2,297			⁽⁵⁾	20,281
Preferred stock dividends	—			—			—			—			(3,283		)	—				(3,283		)
Non-controlling interest	—			—			—			—			(5,412		)	—				(5,412		)
Segment core earnings/(losses)	$	6,044		$	2,853		$	1,388		$	6,325		$	(7,321	)	$	2,297		⁽⁵⁾	$	11,586

Total assets at carrying value	$	2,428,603		$	1,772,333		$	981,300		$	5,016,670		$	4,326,791		$	—			$	14,525,697
Total on- and off-balance sheet program assets at principal balance	5,314,437			1,759,948			978,637			5,951,800						—				14,004,822


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts and interest income related to securities purchased under agreements to resell.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives and hedging activities" on the consolidated financial statements. Includes reconciling adjustments for interest expense related to securities sold, not yet purchased.

⁽³⁾

Includes interest income and interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased, respectively; reconciling adjustments for the reclassification of expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets; and a reconciling adjustment related to the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.


⁽⁴⁾	Includes directly attributable costs and an allocation of indirectly attributable costs based on headcount.


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.



Core Earnings by Business Segment
For the Nine Months Ended September 30, 2015
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	66,932		$	44,456		$	20,015		$	58,676		$	9,144		$	(1,962	)		$	197,261
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(2,128		)	—			—			—			—			2,128				—
Interest expense⁽²⁾	(35,381		)	(31,135		)	(11,466		)	(26,120		)	(3,562		)	5,239				(102,425		)
Net effective spread	29,423			13,321			8,549			32,556			5,582			5,405				94,836
Guarantee and commitment fees	11,111			9			100			1,205			—			(2,128		)		10,297
Other income/(expense)⁽³⁾	760			100			—			—			(1,383		)	3,927				3,404
Non-interest income/(loss)	11,871			109			100			1,205			(1,383		)	1,799				13,701

Release of allowance for loan losses	978			—			—			—			—			—				978

Provision for losses	(1,235		)	—			—			—			—			—				(1,235		)
Other non-interest expense	(12,858		)	(2,396		)	(2,564		)	(1,589		)	(8,975		)	—				(28,382		)
Non-interest expense⁽⁴⁾	(14,093		)	(2,396		)	(2,564		)	(1,589		)	(8,975		)	—				(29,617		)
Core earnings before income taxes	28,179			11,034			6,085			32,172			(4,776		)	7,204			⁽⁵⁾	79,898
Income tax (expense)/benefit	(9,862		)	(3,861		)	(2,129		)	(11,260		)	3,405			(620		)		(24,327		)
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	18,317			7,173			3,956			20,912			(1,371		)	6,584			⁽⁵⁾	55,571
Preferred stock dividends	—			—			—			—			(9,886		)	—				(9,886		)
Non-controlling interest	—			—			—			—			(5,199		)	—				(5,199		)
Loss on retirement of preferred stock	—			—			—			—			—			(8,147		)		(8,147		)
Segment core earnings/(losses)	$	18,317		$	7,173		$	3,956		$	20,912		$	(16,456	)	$	(1,563	)	⁽⁵⁾	$	32,339

Total assets at carrying value	$	2,856,097		$	1,941,166		$	987,115		$	5,405,360		$	3,664,107		$	—			$	14,853,845
Total on- and off-balance sheet program assets at principal balance	5,504,030			1,898,625			1,500,307			6,725,017						—				15,627,979


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives and hedging activities" on the consolidated financial statements.


⁽³⁾	Includes reconciling adjustments for the reclassification of expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets. Also includes a reconciling adjustment related to the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.


⁽⁴⁾	Includes directly attributable costs and an allocation of indirectly attributable costs based on headcount.


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.



Core Earnings by Business Segment
For the Nine Months Ended September 30, 2014
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	57,988		$	40,449		$	21,228		$	59,206		$	15,103		$	(13,637	)		$	180,337
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(1,552		)	—			—			—			—			1,552				—
Interest expense⁽²⁾	(33,295		)	(27,433		)	(13,395		)	(30,020		)	(3,028		)	(18,943		)		(126,114		)
Net effective spread	23,141			13,016			7,833			29,186			12,075			(31,028		)		54,223
Guarantee and commitment fees	11,432			98			—			1,153			—			(1,552		)		11,131
Other income/(expense)⁽³⁾	742			49			9			—			(3,566		)	15,791				13,025
Non-interest income/(loss)	12,174			147			9			1,153			(3,566		)	14,239				24,156

Release of allowance for loan losses	499			—			—			—			—			—				499

Release of reserve for losses	2,188			—			—			—			—			—				2,188
Other non-interest expense	(11,263		)	(2,242		)	(2,369		)	(1,415		)	(7,797		)	—				(25,086		)
Non-interest expense⁽⁴⁾	(9,075		)	(2,242		)	(2,369		)	(1,415		)	(7,797		)	—				(22,898		)
Core earnings before income taxes	26,739			10,921			5,473			28,924			712			(16,789		)	⁽⁵⁾	55,980
Income tax (expense)/benefit	(9,358		)	(3,823		)	(1,917		)	(10,124		)	19,295			5,872				(55		)
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	17,381			7,098			3,556			18,800			20,007			(10,917		)	⁽⁵⁾	55,925
Preferred stock dividends	—			—			—			—			(6,543		)	—				(6,543		)
Non-controlling interest	—			—			—			—			(16,778		)	—				(16,778		)
Segment core earnings/(losses)	$	17,381		$	7,098		$	3,556		$	18,800		$	(3,314	)	$	(10,917	)	⁽⁵⁾	$	32,604

Total assets at carrying value	$	2,428,603		$	1,772,333		$	981,300		$	5,016,670		$	4,326,791		$	—			$	14,525,697
Total on- and off-balance sheet program assets at principal balance	5,314,437			1,759,948			978,637			5,951,800						—				14,004,822


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts and interest income related to securities purchased under agreements to resell.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives and hedging activities" on the consolidated financial statements. Includes reconciling adjustments for interest expense related to securities sold, not yet purchased.

⁽³⁾


⁽⁴⁾	Includes directly attributable costs and an allocation of indirectly attributable costs based on headcount.


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.